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Actuarial management key to changing industry

March 19th, 2014

by Jonathan H. Burroughs

Key stakeholders must back up and align healthcare transformation mandates to achieve high quality and low cost with strong contractual incentives. Healthcare organizations increasingly create co-management or joint venture collaborative arrangements with physicians, large employers and third-party payers to meet the triple aim goals (improving population health, improving the experience of care, and lowering per-capita costs).

UnitedHealth, the nation's largest insurer, will increase its quality/cost incentives to $50 billion within the next five years, and healthcare organizations increasingly partner with or own an insurance product to gain actuarial competence and manage risk successfully.

To do so, many organizations seek partnerships with third-party payers, commercial databases and those with actuarial expertise to better manage risk and transition from discounted fee for service (FFS) to payment with significant incentives for quality, safety, service and cost-effectiveness.

[More:]

About 34 percent of health systems currently own a health plan and 21 percent more plan to create an insurance product in the next five years, according to the Advisory Board's 2013 Accountable Payment Survey.

Nirav R. Shah, M.D., and Dave Chokshi, M.D., describe four fundamental models of partnerships between healthcare organizations/systems and insurance carriers in their October 2013 JAMAarticle, "Should Health Care Systems Become Insurers?" They include:

Full Ownership (Geisinger Health System, Danville, Pa.):

This model represents full integration between a health system and its insurance or health plan. It offers full services including: individual, group, Medicare, Medicaid and Children's Health Insurance Program (CHIP) coverage to its 290,000 members and its larger service area beyond.

This may represent the primary model of the future for large well capitalized, clinically integrated networks to offer a full range of population health services while vertically integrating financing and risk management. Many feel the move to consolidate healthcare will culminate in a dozen or more mega-systems with a global reach and complete vertical and horizontal integration of clinical, business and actuarial competencies.

Partial Ownership (Baystate Health, Springfield, Mass.; + Health New England):

This model illustrates a healthcare organization that owns majority shares of a for-profit health maintenance organization (HMO). They do not share governance functions as in the Geisinger example; however, Baystate oversees the HMO administered by the Health New England in an integrated and aligned fashion. Industry experts may see this model as a transition to complete ownership/integration that enables both organizations to gain competency in the other's areas of expertise.

Partnership (North Shore Long Island Jewish Health System + UnitedHealth Group, New York):

This contractual relationship enables preferential referrals to the healthcare system from UnitedHealth and the development of risk contracts. The advantage of such an arrangement is found in contracts with small to medium employers in the local area seeking an affordable solution to the Affordable Care Act's 'individual mandate, which threatens the ability of many small businesses to offer healthcare benefits to their employees. This is an example of an innovative model that can be utilized within a state-sponsored exchange to enable individuals and small employers access to affordable healthcare.

Contractual Arrangement (Bronx-Lebanon Hospital Center + Healthfirst, New York):

The Affordable Care Act requires a medical-loss ratio of at least 80 percent (which conversely restricts insurance overhead costs + margin to a maximum of 20 percent of the premium value). Some insurance carriers offer a higher medical-loss ratio (90 percent) in exchange for favorable risk-based contracts.

Such is the case with Healthfirst, which partnered with Bronx-Lebanon Hospital Center to create a shared savings program to incentivize stakeholders to optimize quality and reduce costs. The advantage to Healthfirst is twofold: lower its own overhead costs and reap a better margin by aligning its own interests with those of the healthcare organization.

Jonathan H. Burroughs, MD, MBA, FACHE, FACPE is a certified physician executive and a fellow of the American College of Physician Executives and the American College of Healthcare Executives. He also is president and CEO of The Burroughs Healthcare Consulting Network.

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